Fundamental basis tends to be reasonable to find direction in cotton shocks

After several rounds of turbulent corrections, cotton prices fell from highs, falling by nearly 23%. Although this time the price fell more than a wave, it is basically the same as the low level after the collapse in November 2010, from the technology From the above, the shape of the head and shoulders is initially presented. So will the price of cotton be stabilized by this?

Fundamental basis tends to be reasonable

With cotton prices falling, because of the time lag, the cotton spot market also fell all the way after March. The spot price of cotton 328 fell from the highest of 31,228 yuan/ton in March to 24,606 yuan/ton in the current month, a decrease of about 21%. %. With the adjustment of spot prices, spot prices have now fallen back to ** prices, and the basis tends to be reasonable.

With the base rate returning to a reasonable level, and because of the 10/11 fiscal year, global cotton as a whole is still a very tight fundamental, and we believe this will be a sign of stable cotton prices.

Weak demand in the textile industry remains

The continuous decline in the price of cotton ** has caused the market's stance on the “gap theory” of cotton to begin to fluctuate. Moreover, in the latter part of the rise in cotton prices, cotton merchants reluctantly sold on one hand, while on the other hand, the downstream has resisted the situation of high-priced cotton, and textile companies adjusted their raw material mix. Compared with other methods to reduce the use of cotton, the stagnation situation in the spot market is serious and the transaction is bleak. With the worsening of the downtrend, market worries have spread to the downstream cotton yarn and grey cloth markets. As of mid-May, the price of KC32S was 33,050 yuan per ton, which was a drop of 6,650 yuan over the highest price in February, a decrease of 16.5%; the price of JC40S was 41,130 yuan per ton, a drop of 5,670 yuan or 12% from the highest price in February.

The decline in prices caused the textile industry to suffer from sluggish sales. On the one hand, each cotton spinning enterprise has a high finished product inventory. On the other hand, due to sluggish sales, the company has begun to experience restrictions on production and production due to sluggish funds and pressure to return funds.

Recently, with the slight rebound of cotton prices, the pessimism in the market has eased, and the inquiry of mills is increasing, indicating that the market has loosened. Some companies actively look for self-rescue measures and wait for the downstream form to improve.

National policy

The high domestic CPI shows that inflationary pressures are still relatively large. The market's expectation for the country's tightening monetary policy continues. On the 18th of this month, the central bank raised the reserve requirement ratio again, and the decrease in liquidity will pressure the market for a long time. In addition, rumors of a tax rebate on textile exports dropped from 16% to 11%. Although it has not been confirmed by relevant departments, some analysts believe that the downward adjustment of textile export tax rebates conforms to the development trend of China's foreign trade. If the reduction is likely to take place in June or July. Once the tax rebate is lowered, many domestic small and medium-sized textile companies and textile companies with a large export share will face enormous risks and will, to a certain extent, have a certain impact on cotton prices.

Overall, the current cotton market still lacks a clear direction. From a technical point of view, the current round of callbacks is basically over, and there are signs of a rebound in cotton prices. However, given the overall macroeconomic environment and transactions in the cotton spot and textile markets, the fundamentals There is no new bullish factor supporting the price rebound and it is expected that the current cotton price shock pattern will wait for a breakthrough.